MHR Fund Management LLC has made a major move on Titan International Inc., which gives the private equity firm the ability to own 10.9% of the company.
For close to $67.7 million, MHR purchased the following on Jan. 9, 2014:
1. 2.6 million shares of Titan common stock ($39.5 million).
2. call options that give the company the option to buy an additional 3,240,000 shares of Titan stock for $26.3 million on or before a particular date. MHR purchased the call options at a premium: nearly $28.2 million.
If MHR exercises the call options, it will own 10.9% of Titan.
In a Schedule 13D filing with the Securities and Exchange Commission, MHR said it believes Titan's shares are undervalued, and seeks "to engage in discussions with management and others concerning the business and operations of (Titan)."
According to C. Schon Williams, an analyst with BB&T Capital Markets, Titan's management team already has had initial conversations with MHR.
"For the time being, the fund (MHR) has yet to detail any specifics on the changes they would like to implement," he says. (BB&T Capital Markets is a division of Scott & Stringfellow Inc., a registered broker/dealer subsidiary of BB&T Corp.).
On its website, MHR Fund Management, which Williams describes as an "activist investor," says it takes "a highly differentiated, control-focused, private equity approach to investing in distressed and undervalued middle-market companies." It seeks to "exert control or significant influence on its portfolio companies," which it believes is "essential to preserving and creating value."
The firm manages assets in excess of $5 billion.