The shares of Design Within Reach, Inc. (OTCPink: DWRI) were up sharply in early trading this morning on news that Herman Miller would acquire an ownership interest of 84% for approximately $154 million in cash. According to the press release, Herman Miller CFO Greg Bylsma stated, “Each of DWR’s shareholders will be entitled to receive approximately $23per share on a fully-diluted basis as a result of the acquisition. Furthermore, an escrow account (borne solely by the largest DWR shareholders), will be established to satisfy any post-closing obligations resulting from the transaction. Shareholders will receive further information from the Company regarding the acquisition shortly after closing.”
The current CEO of Design Within Reach, John Edelman, and its current president, John McPhee, will continue to manage the operations of the unit within Herman Miller and will convert their remaining ownership in Design Within Reach for a 8.5% ownership stake in the newly formed consumer business unit under the Herman Miller umbrella. Design Within Reach expects to benefit through a larger presence within the higher margin consumer market and Herman Miller will gain access to an exclusive product portfolio further establishing the company as a premier lifestyle brand.
It sounds like a match made in Heaven, but who cares unless you own or intend to buy shares of Herman Miller. The real question is can more money be squeezed out of the deal by investors? The answer is… Maybe a little. Shares opened the day at $5.00 after last trading at only $3.25. It should be noted that last trade was only a few days ago and was the largest single volume day for the stock in the last five years. If it wasn’t for the fact the stock was actually down that day from the previous close, I might suspicious. Unfortunately, it may have just been bad timing on the part of an investor tired of waiting for the stock to rebound.
As I write this article, shares are changing hands at about $21.90 per share. With an offer on the table valued at $23.00 the easy money has certainly been made and leaves about $1.00 or a 4.5% return on the table. Of course if you annualize the return begins to look very attractive, but you will have to most likely tie up that capital until the acquisition is consummated. In addition, there is always some modest downside risk if for some reason the deal falls apart. However, I see that risk as minimal in this deal. Shares will most likely drift a little lower as investors cash out, and then strengthen again as new investors play the arbitrage. It will be important to pick your entry point wisely in order to maximize returns.
This is a true turnaround success story for Design Within Reach. It was only five years ago the company terminated its registration with the SEC and delisted from the Nasdaq as shares sank to well under $1.00 per share. The current leaders, Mr. Edelman and Mr. McPhee were appointed to their posts in 2009 and have orchestrated an enviable recovery.
Disclosure: The author owned shares of DWRI at the time this article was published.