Mobile Mini's Maxi-Merger

Motley Fool Stock Advisor recommendation and portable storage container maker Mobile Mini (Nasdaq: MINI) closed out the trading week with a bang. Sure, the company reported its full-year earnings, which included sales up 16% for the year and earnings per share basically flat at $1.22. But even Mini's management seemed to think the results were of secondary importance to the headline news: Mini's merging.

Merging?
Well, that's what Mini called it. To me, the deal to "merge" with privately held rival Mobile Storage (majority-owned by private-equity house Welsh, Carson, Anderson & Stowe) looks more like a takeover. For one thing, according to the terms of the press release, Mini will pay $12.5 million cash, assume $535 million in debt, and issue $154 million worth of preferred stock (8.55 million shares, with a conversion price of $18 per share) to gain control over Mobile Storage. For another, although Mobile Storage's CEO will get a job at the new "merged" entity, the top spots continue to be occupied by Mini management -- Steve Bunger at the helm as CEO, seconded by Larry Trachtenberg as CFO.

Pause. Now breathe.
Before getting into the valuation on this deal, I want to make two observations that may cheer the hearts of Stock Advisor subscribin' Fools, since we recommended this stock to you last year. First, let's look at the $18 implied valuation on the shares. In an arm's-length transaction like this one, the sellers' agreeing to this price suggests that Mini's shares are trading below intrinsic value. Second, at least one of the sellers here -- namely Welsh, Carson -- "will be converting substantially all of their equity ownership of Mobile Storage group into Mobile Mini preferred stock," a move that suggests Welsh, Carson thinks Mini is worth far more and plans to hold on to its shares until they reach that fair value. In theory, Welsh, Carson could as easily have demanded cash payment and invested it in another storage company, such as Public Storage (NYSE: PSA) or U-Store-It (NYSE: YSI).

Make sure to check the Stock Advisor site next week, where our team will be providing an update on the news. Even if you're not a subscriber right now, take a free trial of the service, and you'll be able to read the update.