StoneMor/Axar Capital transaction recommended by shareholder agency

Earlier this week according to this press release the Institutional Shareholder Services (ISS) recommended that shareholders of StoneMor vote “FOR” the pending transaction with a subsidiary of Axar Capital Management LP.  That vote, which would take StoneMor to a private company status, is scheduled for a special stockholders meeting on November 1, 2022.

Among other reasons, ISS noted the following for current StoneMor shareholders:

  • “The merger consideration is above the estimated values of the fairness opinion….The merger consideration represents a 67.5 percent premium over the price on the unaffected date and a 54.2 percent premium over the price on the day prior to the announcement…”
  • “Shareholders are receiving a premium, there is a downside risk of non-approval, and the cash consideration provides liquidity and certainty of value. In light of these factors, support for the proposed transaction is warranted.”

Here’s what StoneMor CEO Joe Redling said about the ISS recommendation, “The Company is pleased that ISS shares its belief that the transaction with Axar is in the best interests of all StoneMor stockholders and supports the Board’s recommendation that stockholders vote FOR the transaction.  The transaction with Axar delivers significant, immediate and certain value to our public stockholders, eliminating their exposure to the execution risks and significant macroeconomic headwinds associated with continuing as a standalone company.”

The acquisition/take private concept was announced in this press release of May 25, 2022.  As you can see from the press release, Axar and affiliates already owned about 75% of StoneMor at the time.  Thus, the independent shareholders to be bought out by this process represented only about 25% of the company shareholders.

According to the latest StoneMor press release the company owns and operates 302 cemeteries and 74 funeral homes in 23 states and Puerto Rico.

Tom Anderson
Funeral Director Daily

Funeral Director Daily take:  According to Seeking Alpha, StoneMor had revenue of $268 million in 2021 and showed a $6.6 million profit for the same time period.  According to the same source, the company’s Trailing Twelve Month (TTM) period through June 2022, revenues are virtually even at $267.6 million but a loss of $12.9 million shows on the bottom line.  (Seeking Alpha STON financials).

Interesting to note, the company, according to Seeking Alpha currently has a $404.95 million market capitalization for what amounts to 376 death care properties (funeral homes and cemeteries).  That amounts to a market cap price per property of only $1.077 million value per property.

I continue to speculate on the many avenues available to the new private company StoneMor after the, more than likely, take private finality come November 1, 2022.  Will StoneMor continue to operate cemeteries and funeral homes?  Will they move out of one of the death care operating businesses?  Will they try to pay down debt by selectively selling certain properties?  Will they look to grow through acquisitions?

I think they have a lot of alternatives to look at.  They also have challenges that will have to be dealt with.  One of the things that is more than likely certain after the November 1 date is that they will be able to execute their plan without public shareholder scrutiny.  That may make things easier for them to accomplish.

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