The $2.8 billion deal that Reynolds and Reynolds Co. and Universal Computer Systems Inc. struck last week is not quite the merger that the two vendors of dealer management systems initially led auto dealers to believe.
Reynolds, the No. 2 marketer of dealer management systems, would continue to market its system under its brand. But it would become a subsidiary of Universal Computer, a private company that is a distant No. 3 in the marketplace.
If Reynolds shareholders approve the deal, the company also would go private. Fin O'Neill would continue as Reynolds CEO. He stands to make $9.7 million from the proposed agreement.
Reynolds would retain its Dayton, Ohio, headquarters. About 10,000 dealerships in the United States and Canada use the company's dealer management system.
At the same time, the Universal Computer brand would be discontinued. About 750 dealerships use the Houston company's system.
ADP Dealer Services, the industry leader, has about 11,000 dealership clients in North America.
Dealers who now use the Universal Computer system would not be forced to switch to the Reynolds system. Reynolds plans to position the Universal Computer system as a top-of-the-line computer system but under the Reynolds brand, O'Neill says.
O'Neill told Automotive News that the two companies negotiated the proposed combination for 10 months.
"The more we thought about it, we thought the business model looked good," O'Neill said. "There were questions back and forth as to how it might work, but we came to the point of view that the business model itself could be a very successful business model.
"The job of management is to develop a number of options to enhance shareholder value, and you select one and you work it," O'Neill said.
The U.S. Justice Department and Securities and Exchange Commission would have to approve the deal. If Reynolds shareholders sign off, they would get $40 a share. That is a 14 percent premium from Reynolds' closing price of $35.08 a share on Monday, Aug. 7, on the New York Stock Exchange.
Wall Street involvement
Universal Computer is financing the deal through Goldman Sachs Capital Partners, Vista Equity Partners, Spanish Steps Holdings, Deutsche Bank and Credit Suisse.
The company's CEO, Robert Brockman, will continue to head the parent company. Brockman did not respond to repeated requests for interviews. It is not clear what role he would play in the Reynolds-Universal combination.
Technically, the merger is between Reynolds and Racecar Acquisition Co., a wholly owned subsidiary that Universal Computer formed solely for structuring the deal.
O'Neill joined Reynolds in January 2005 after he quit as CEO of struggling Mitsubishi Motors North America. He has 440,000 shares of Reynolds stock and stock options.
You may e-mail Ralph Kisiel at [email protected]