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Cintas Corporation (NASDAQ: CTAS) has now terminated merger discussions with its much smaller uniform supplier (and related services) competitor called UniFirst Corporation (NYSE: UNF). This is where a $78 billion company was trying to pay about $5 billion for UniFirst. While a drop in the stock would be normally expected, a 14% drop on a deal that was already believed to be dead on arrival is another issue entirely.
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Cintas is set to report earnings this same week, with UniFirst slated to report earnings the following week. At the last earnings report, including an estimated $16 million of costs directly attributable to its Key Initiatives, UniFirst’s 2025 guidance was as follows:
revenues of $2.425 billion to $2.44 billion
diluted earnings per share of $6.79 to $7.19
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UniFirst insiders had already not been in favor of the Cintas takeover proposal for $275 per share in cash. It was turning down a 46% premium at that time and what would have been an all-time high for the stock. The company’s response was that UniFirst is confident in its strategy as a standalone company. Unifirst shares rose from about $170 to $230 on the initial buyout news, but even that big jump was still quite a ways under the $275 merger.
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Let’s just say that most merger-arbitrage stocks are rarely more than 15% as it was in this case. Many buyouts initially trade close to the offer price or even higher if there are strong hopes of a better deal to be had. The long and short of the matter is that Wall Street was immediately assigning very low odds of this merger ever happening.
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Where the story gets interesting for strategic investors and special situation investors alike is that UniFirst’s 14% one-day drop takes the stock right back down to where it was before the deal was even announced. It seems unusual to believe that this leaves no potential deal premium ahead. Then again, both companies have earnings coming out quite soon and President Trump’s tariffs are an ongoing issue for many companies in many sectors.
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The Cintas CEO statement said:
“We have engaged with UniFirst and its advisors over the past several weeks in an effort to reach a mutual agreement regarding a transaction that we believe offers tremendous value for customers and shareholders. While we continue to believe in the merits of a transaction, we were unable to have substantive engagement with UniFirst regarding key transaction terms. We do not believe further discussions are warranted at this time.”
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When companies that are nearly 20-times larger than a smaller rival attempt to make an acquisition, it rarely means a deal is off the table forever.
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One issue at hand is that UniFirst is considered a closely held corporation by most calculations with two classes of stock (Common Stock and Class B Common Stock) outlined as follows:
Each share of Common Stock is entitled to one vote, is freely transferable, and is entitled to a cash dividend equal to 125% of any cash dividend paid on each share of Class B Common Stock. Each share of Class B Common Stock is entitled to ten votes and can be converted to Common Stock on a share-for-share basis. However, until converted to Common Stock, shares of Class B Common Stock are not freely transferable.
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UniFirst had also entered into a share repurchase program in 2023 for up to $100.0 million of its outstanding common shares. As of November 30, 2024, it still had $69.8 million remaining under that existing share repurchase authorization.
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UniFirst shares have been unable to get back above and stay above the early-2021 high above $240. That would have been about 200% in share price from 2013 to the peak in 2021… and a roundtrip of zero since, or worse as of this time.
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UniFirst has many alternatives that it can consider going forward. What those strategies will be remains to be seen. This company is also not widely followed by Wall Street.
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