The lull is about to end.
Republic Industries Inc. has been quiet after rocketing out of nowhere to become the largest auto dealer group in the country in 1997. Now, the conglomerate hopes to reap $2 billion in cash by spinning off its waste disposal business. Republic plans to use much of the windfall to buy dealerships.
Using cash as currency is a departure for Republic, which has bought most of its dealerships with stock or a combination of cash and stock.
Steven Berrard, president and co-CEO of Republic, told investment analysts Wednesday, May 13, that Republic is spinning off its waste division so investors can evaluate the company solely on its auto retail and auto rental businesses.
Sheldon Sandler, principal in Bel Air Partners, a Princeton, N.J., automotive financial consulting firm, said, 'One of the problems they've had is the actual and perceived selling of stock by dealers.' As soon as the company buys dealerships for stock, those dealers dump some of their shares, creating a surplus and keeping prices down, Sandler said.
Berrard said Fort Lauderdale, Fla.-based Republic may return to buying dealerships with stock, but 'the preferred currency will be cash until we feel the stock price is reasonable.'
Berrard said he is not concerned about dealers raising their selling price because Republic is paying in cash. 'Dealers may want to stiffen the price, but we're not going to overpay for something,' he said.
Republic has bought 60 dealer groups with 300 franchises and sales in excess of $7.5 billion last year.
The spinoff plan calls for Republic to sell about 25 to 30 percent of Republic Services Inc., the waste entity, in a public offering. The remainder of the shares will be spun off to existing Republic shareholders in 1999.
The transaction is subject to a ruling by the Internal Revenue Service that such a distribution of shares is tax-free.