Cintas (CTAS, Financial) faces modest losses today, while UniFirst (UNF, Financial) experiences a significant sell-off, reaching its lowest point this year. This follows Cintas's decision to end discussions with UniFirst regarding a January proposal to acquire the company for $275 per share, a 46% premium over UniFirst's 90-day average price. UniFirst, a similar uniform rental company, rejected this unsolicited offer from Cintas, a leading business equipment supplier.
Investors initially believed a deal would materialize, keeping UniFirst shares over 30% higher than their closing price before the proposal. However, as time passed without new developments, doubts grew, leading to a steady decline in UniFirst's stock. The termination of merger talks by Cintas has now brought UniFirst's shares back to pre-proposal levels.
- Why are investors fleeing UNF today? The potential Cintas deal offered substantial appreciation, with $275 being an 8% premium over UniFirst's record closing highs in 2021 and a 63% premium over levels before the January proposal.
- Future discussions between Cintas and UniFirst seem unlikely. Cintas had previously proposed a $255/share buyout in 2022. In November 2024, Cintas increased its offer to $275, but UniFirst's Board rejected it outright. Despite Cintas's public attempts to pressure UniFirst into accepting, the Board unanimously declined.
- It's surprising that investors maintained elevated trading levels for UniFirst shares despite the company's clear stance on remaining independent.
Where does UNF go from here? UniFirst's financials are strong, with no long-term debt, allowing flexibility in pursuing operational goals. In January, UniFirst expressed optimism about its pipeline of large account opportunities. However, some weaknesses have emerged compared to the previous year. In Q1 (November), net wearer levels for existing customers contracted year-over-year. Despite this, UniFirst improved margins, operating income, and adjusted EBITDA during Q2, even with a modest 1.9% year-over-year increase in consolidated revenue.
The collapse of the proposed deal between Cintas and UniFirst is unfortunate for both companies, though less so for Cintas. UniFirst remains confident in creating more value independently than through acquisition by Cintas. However, given the current economic and competitive pressures, it may take time for UniFirst to reach the valuation level proposed by Cintas.
