Yesterday, we delved into the gloomy past of parking management company Central Parking (NYSE:CPC). We saw slowly rising revenues failing to translate into growing profits, free cash flow evaporating into the stale, concrete-enclosed air, and a debt burden growing increasingly difficult to manage. Today, we'll shift gears and examine management's plans to pull its business through a U-turn -- with the help of two well-compensated bankers.
Central's latest plan for corporate salvation comes in two parts: restructuring, announced earlier this month, and a stock buyback plan, unveiled late last week. The buyback will be conducted in the form of a self-tender. Central has retained Bank of America (NYSE:BAC) to run a Dutch auction in which it will invite shareholders to tender as many as 4.4 million shares of Central Parking stock for repurchase by the company. Banker SunTrust (NYSE:STI) will serve as depositary for the shares tendered. That's the skeleton of the plan. The remaining details will depend on how attractive shareholders find the company's offer. Depending upon the level of investor interest, Central will pay anything from $14.50 to $16.75 per share tendered, and buy back "up to" 4.4 million shares -- perhaps more, if it so chooses.
Unfortunately, Central is hardly in a position to spend cash on share buybacks. At the prices and share volume envisioned, the transaction could cost the company $64 million to $74 million at the very least. With $217 million in net debt already and zero free cash flow according to its recent earnings report, how can Central finance this purchase?
Admittedly, the buyback is only part of a wide-ranging and ambitious plan for restructuring the company, streamlining its operations and selling off unprofitable assets. Those are all admirable and necessary actions, but they'll still cost money to accomplish. In this Fool's opinion, Central should focus on its restructuring and get its business back on the road to positive free cash flow -- but leave it at that. By simultaneously trying to boost its stock price with a costly buyback plan, this garage operator is trying to go a bridge too far.
Park yourself for further Foolishness:
- Central Parking Hires Financial Advisor
- Gridlock at Central Parking
- Has Central Parking Stalled?
- An Imperial Sellout
Fool contributor Rich Smith has no position in any of the companies mentioned in this article.
