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Morningstar | NASCAR Places $42 Bid For International Speedway, Marking a Mere 8% Premium to Market Price

Narrow-moat International Speedway received a nonbinding cash bid for the acquisition of its Class A and B shares of $42 per share on Oct. 9, representing an 8% premium on ISC’s prior market closing price ($39.06). While an offer at 11 times 2018 EV/EBITDA is generally lower than the multiples we have seen offered on recent acquisitions, we believe there are two reasons for a depressed offer. First, with the Frances implicitly agreeing to the offer and as the owners of NASCAR, the impetus to pay a significant premium is low. Second, the returns on invested capital on the business remain weak, at a mid-single-digit level (below our 8% weighted average cost of capital estimate), which we believe would limit the premium any buyer would want to pay up on a business capturing negative economic rents.

Despite the Frances holding more than 70% of the voting power to affect the transaction, we believe there are a few mitigating factors that could delay a formal bid. Importantly, ISC has initiated a special committee of independent directors to consider the proposal. We think this alone could push the share price offered modestly higher to complete the deal, representing closer to a midteen EV/EBITDA range that has recently been paid for other consumer discretionary companies, in order to be deemed favorable for shareholders. Additionally, for the transaction to be successful it would have to be approved by a majority of ISC’s shareholders other than the France family, representing outsiders that may have invested close to the offer price (since shares rallied to $47 earlier this year). Furthermore, competitors could view the transaction unfavorably. Leadership at peers Speedway Motorsports and Dover could raise competitive concerns given that their negotiating positions could deteriorate with NASCAR if the current transaction proceeds. Given the nonbinding nature of the offer and the above mentioned issues, we plan to maintain our $37 fair value estimate for now.

Independent of the transaction, we don’t anticipate any change to the France family’s leadership and vision for NASCAR; in fact the bid release noted that the France family is not interested in selling its shares of ISC at this time. The vague language surrounding the tie-up suggested that the industry requires “structural changes to best position the sport for long-term success,” which appears to be the motive behind the transactions. No specific insight to these changes has been offered yet, but we don’t generally think the peer group will be left out in the cold by NASCAR. With Speedway Motorsports owning some of the favorite tracks of stock car racing fans, including Charlotte and Bristol, lifting the sport across the entire industry will be imperative in order to restore demand to both attendance and ticket sales as well as TV ratings.